Buying a Vacation Property

The market for vacation properties is booming across North America, and it's all due to demographics. Baby Boomers are getting to the age when they have more free time. They also have more disposable income and are frustrated with recent money markets, so real estate has become an attractive option.

But Canadian Baby Boomers aren't the only ones looking at Canadian vacation properties. Take Vancouver Island for example. Like most prime recreation areas in Canada, it has always attracted U.S. buyers. But recently, U.K. buyers are interested too. Property values in the U.K. have doubled in recent years - and Europe can be even more expensive. So buyers are going farther afield, and many end up in Canada.

Vacation properties can be anything from a lot in the woods to a free-standing home to an urban condominium. All it needs is some kind of recreational draw, whether it's near a ski resort, golf course, beach, in the countryside or in a destination city like Vancouver.

Obviously, location is one of the first things you have to consider when shopping for a vacation property. It has to be located where you want to be, as well as being easy to get to. Most people don't want to travel more than four or five hours from a major centre."

Choosing a vacation property isn't like buying a house when you're being transferred. The decision to buy often involves more emotion than a regular home purchase. There has to be a strong emotional attachment to a property to make it worth the investment. Which is why there's a tendency toward impulse buying. It's not uncommon for a prospective buyer to see a listing in the morning paper, visit the property in the afternoon and sign the purchase papers by the end of the day. Fortunately, most people don't have $200,000-$400,000 sitting in their bank account, so they're forced to do some due diligence before making a decision.

Because a vacation property is a big investment, it's important to put some thought into it. Avoiding a bad decision requires an understanding of why you're buying it in the first place. Here are the three most common reasons:

Personal use. You buy the property because you see yourself using it.

Capital appreciation. You buy it and expect to sell it later at a profit.

Return on investment. You buy it, use it occasionally and rent it out the rest of the time to subsidize your investment.

Knowing why you're buying can definitely help you make a better decision. If you're buying for personal use, location is very important. If you're buying for capital appreciation, location isn't as important as how much it costs and what the market is like. If you're looking for rental income, the property has to be in an area where people want to stay. If you're just looking for an investment that will pay for itself, vacation property isn't typically the best choice.

Another consideration is the seasonality of the property or the area. If you're interested in seasonal recreation, there may be unforeseen risks. Ski resort areas can suffer when there's no snow, while other areas may offer twelve months of recreation that isn't so dependent on weather. As for the property itself, most people today want to use their property year-round. While 20 years ago they might have bought a ski cabin for wintertime and a lake cabin for summertime, today's prices make that unrealistic.

So, have vacation properties gotten so expensive, average Canadians can't afford them? Not necessarily. Choosing a more isolated area or a home with fewer amenities can make the purchase more affordable, as can ownership options such as time shares and rental income (see below for other considerations). In the end, there's usually a way to put your dreams within reach.

How to make a vacation property more affordable.

Time shares or interval ownership. With a quarter share, for instance, you get a well-maintained property that you share with three other people, so you have access to it one week per month.
Renting it out when you're not there. Aside from earning rental income, you enjoy a tax write-off of expenses and mortgage interest during the periods the property is rented.

Ownership options

If you want a truly lock-it-and-leave-it experience, consider a condominium. You won't be waking up in the middle of the night wondering if the hot water tank has burst - but of course you're paying for someone to take care of those worries for you.
With a single family home, you don't have the same peace of mind as with a condo, but you have more freedom. For instance, you can paint the exterior whatever colour you want.

Common pitfalls to watch for

Thinking you'll use it, but you don't. The real benefit of a vacation property is the family time you spend there. Even if you don't make money when you sell it, there's still the value of all those good memories.  Thinking you can maintain it, but you can't. Don't buy a fixer-upper if you're not handy. You'll end up spending your holidays fixing, and still have to pay somebody to fix everything you did wrong.   Forgetting that it's a taxable capital gain. Since the property isn't your principal residence, when you sell it you'll be taxed on any appreciation in value.   If you'd like information on financing the purchase of a vacation property - or if there are any other matters related to your mortgage that you'd like to discuss - your Mortgage Centre Specialist would love to hear from you. Together, you'll find out which options work best for your situation. And you can be sure that the advice your Mortgage Centre Specialist provides is designed specifically for your best outcome.